yes, greenscreen works, and it saves a bit of hard disk space by only using one video, but you can sometimes get problems with it, e.g. if you do an antialiased render, then your characters (or whatever) can often come out with a slight green halo around them after compositing, depending on how good - or not - the greenscreen function is in your editor. this happens because the antialiased pixels around the edges will be part model-coloured, and part green-background-coloured - green enough for the eye to notice "hey, there's green there!", but not green enough for the computer to say "oh, look, let's get rid of those pixels, they look green".
on the other hand, the alpha channel method has the disadvantage of taking up more HDD space - you need both the colour video, and another video file for the transparency data - but it has the advantage of producing much cleaner composites, especially right around the edges of your objects, and even more so if you render your objects with a background colour as close as possible to the general colour of your intended background image (if it has a "general colour", that is; if the background is all sorts of colours, then it's probably best to render your colour channel with a medium grey background).
the alpha-channel method also allows you to make your object as colourful as you want - there's an anecdote from ILM about the X-wing fighters in Star Wars: they were supposed to have blue markings, but this had to be changed to red (and the team name changed from "Blue Group" to "Red Group"), because if they'd tried to bluescreen a model with blue markings, then the blue bits of the fighters would have become seethrough - and looked really, really stupid! but today, with CGI models and the alpha-channel compositing method, you can make your object any colour(s) you want.
anyways... hope that helps!
- colclough
